From Blockbuster Ambitions to Box Office Bust: The MoviePass Saga
5th edition of series "celebration of failed startups"
Welcome to the fifth installment of our "Celebration of Failed Startups" series. In past articles, I've dissected the downfall of Beepi, YikYak, Quibi, and Juicero. Be on the lookout for our upcoming series, "My Personal Founder Fuck-ups" debuting in two weeks!
Today, I’m deep diving into the interesting tale of MoviePass - a subscription based movie ticket service. Let’s get started!
Company Profile
Elevator Pitch
MoviePass was a subscription service that allowed customers the freedom to see movies in theaters at a fixed monthly price. The company concentrated on only customer-focused service. And with this exceptional idea that was almost too good to be true, the number of subscribers started to increase rapidly, making it to over 3 million.
Founding Team Background
MoviePass was founded by Stacy Spikes and Hamet Watt.
Stracy Spikes and Hamet Watt, the founders of MoviePass
Stacy Spikes, a former film marketing executive and producer, is an American entrepreneur. Spikes embarked on his career journey as a product manager, collaborating with numerous notable celebrities. His professional trajectory led him to Sony Music Entertainment, where he contributed to the production of iconic feature film soundtracks for movies such as Jungle Fever, Bad Boys, and House Party.
Notably, Stacy Spikes is also celebrated as the brain behind the inception of the Urbanworld Film Festival in 1997. Throughout his career, he has held senior executive positions at renowned entities like Motown Records, Miramax Films, and October Films. These diverse experiences in the film industry laid the foundation for his vision for MoviePass.
For further insights into Stacy Spikes' career and background, you can check his LinkedIn Profile and Wikipedia page.
Hamet Watt is an alumnus of Florida A&M University who commenced his career at a boutique investment banking firm, where he gained experience in financial matters.
Presently, Hamet Watt serves as a Board Partner at Upfront and operates as the CEO and founder of Share Ventures. He extends his advisory expertise to companies like Grow Credit and PLLAY Labs and has previously advised at Nielsen Media Research.
For additional information, you can check Hamet Watt's LinkedIn and Twitter profile.
One more individual who is worth mentioning in the story is Mitch Lowe who became CEO of MoviePass in 2016 and took many strategic decisions and finally left the company in 2020 after it went bankrupt.
Mitch Lowe is a seasoned executive with a diverse background in the entertainment and business industries. He held the role of Vice President of Business Development and Strategic Alliances at Netflix from March 1998 to January 2003. Mitch also held executive roles at McDonald’s Corporation and Redbox before starting advising MoviePass in 2014.
Funding
$1.5M Seed round
$2.2M Series A
$65M Series B
Key VCs: True Investors, Structure Capital, Otter Rock Capital, Zenstone Venture Capital, Elevate Innovation Partners, and Lambert Media Group.
Key Angels: Chris Kelly, COO of Inverted Edge
Product & Services
MoviePass was a subscription-based service that aimed to revolutionize the way people experienced movies in theaters. It allowed subscribers to pay a fixed monthly fee, initially with varying pricing tiers based on location, and in later iterations, a uniform fee of $9.95 per month. In return, subscribers could watch a specified number of movies in theaters every month, with some plans offering unlimited movie access.
To use MoviePass, subscribers would download the MoviePass mobile app, which had location-based technology. They would then select the movie they wanted to watch, check in at the theater using the app, and receive a virtual ticket. They could then use this virtual ticket to gain entry to the movie of their choice. MoviePass also issued independent debit cards to subscribers, which drew funds directly from a MoviePass-owned bank account to cover the cost of movie tickets.
Here is one minute video from a user explain how MoviePass worked:
The key innovation was that MoviePass covered the full cost of the movie ticket, so subscribers effectively paid very little or nothing out of pocket for each movie they watched. This made it an incredibly attractive proposition for frequent moviegoers, as they could watch multiple movies for a single monthly fee.
The company also encouraged user engagement by allowing subscribers to share their movie experiences on social networks, rate and review films, and foster a sense of community among movie enthusiasts.
MoviePass Timeline
Fall of MoviePass
Founded in 2011, MoviePass quickly became popular in the market, causing a surge in the ongoing movie business and attracting a growing user base. Stacy Spikes, the founder, secured Seed and Series A funding from investors.
The plan was straightforward: offer movie tickets through a subscription model, allowing subscribers to watch movies in theaters every day for a monthly fee. MoviePass offered two subscription plans: unlimited movies for $40, $45, or $50 per month (location-dependent) and two films per month for $15, $18, or $21 per month (location-dependent).
With promising early traction, the founders brought in Mitch Lowe, a seasoned executive from Netflix, as the CEO of MoviePass in 2016.
In August 2017, Helios and Matheson Analytics set its sights on Hollywood and acquired MoviePass. Under the new ownership, the founders departed, and full control was assumed. The company abandoned the location-based pricing strategy, opting for a one-size-fits-all approach at $9.95 per month for one movie per day. This move accelerated their growth, as depicted in the chart below, and helped secure a Series B funding of $65 million in October 2018.
The party did not last long though!
While $9.95 per month was a steal for subscribers, it posed a significant financial burden on the company, resulting in losses with every new subscription. MoviePass attempted to generate additional revenue through deals like a revenue-sharing arrangement with the largest U.S. theater chain, AMC. The negotiation of this deal turned ugly and MoviePass blocked AMC theaters on its app, prompting AMC to launch its own MoviePass alternative called AMC Stubs A-List. Many other theaters followed suit, intensifying the competition for MoviePass.
To address financial losses, MoviePass frequently modified its terms of service, including restrictions on accessing certain movies or showtimes. The biggest change was limiting subscribers to three movies per month from 30 movies! These changes frustrated users and eroded trust in the service, leading to a decline in the user base. Within 10 months, the company lost 90% of its subscribers.
With a failed business model and a dwindling user base, investors lost confidence, ultimately leading to the company's shutdown in September 2019.
Learnings: Why MoviePass failed?
There are three fundamental reasons, the company failed:
Unsustainable Business Model
MoviePass's downfall was partly due to the fundamental economics of its business model. The company promised subscribers the ability to watch multiple movies in theaters every month for a fixed, low monthly fee. While this offer was enticing to consumers, it posed a significant financial loss for MoviePass. The crux of the issue was that MoviePass had to pay the full cost of movie tickets to theaters for each subscriber's movie visit. This meant that MoviePass was essentially subsidizing its users' tickets, regardless of the actual ticket price. It had to pay more for tickets than it collected in subscription fees.
Another factor that contributed to MoviePass's unsustainable business model was the rapid growth of its subscriber base. While acquiring millions of subscribers quickly might seem like a success, it placed an enormous financial burden on the company. As the user base grew, so did the demand for movie tickets, which MoviePass had to pay for in full. The company struggled to manage the escalating costs associated with providing unlimited movie access to a rapidly expanding subscriber pool.
Competition Pressure
While MoviePass pioneered the movie subscription service, it soon faced intense competition from multiple fronts within the industry.
One of the most significant competitive challenges for MoviePass came from the very theaters it relied on. Several major theater chains, such as AMC, Cineworld (Regal), and Cinemark, recognized the appeal of subscription models and launched their own subscription services. These theater chains could offer their services with a more sustainable pricing structure because they had better control over costs and revenue streams. For example, AMC's "AMC Stubs A-List" allowed users to watch multiple movies per month at AMC theaters for a competitive monthly fee. This direct competition drew users away from MoviePass, as they could access a similar service with greater convenience and reliability.
Beyond theater chains, MoviePass also faced competition from alternative movie ticketing apps that adopted different approaches. These apps offered users the ability to purchase tickets in advance, reserve seats, and even access exclusive showtimes. Their services appealed to moviegoers seeking a more seamless and feature-rich experience. With these alternatives emerging, MoviePass struggled to retain its user base, especially as it continued to change its terms of service and impose restrictions, frustrating its subscribers.
As the concept of movie subscription services gained traction and MoviePass's struggles became publicized, more competitors entered the market. This increased competition further fragmented the customer base, making it challenging for MoviePass to maintain its market share and subscriber loyalty.
Strained Relationships with Theaters
MoviePass's business model, which involved subsidizing the full cost of movie tickets for its subscribers, created tensions with many theater chains, including AMC (the largest theater chain in the United States).
To alleviate its financial losses, MoviePass attempted to negotiate revenue-sharing deals with certain theaters. In these arrangements, MoviePass would receive a portion of the concessions revenue generated from its subscribers in exchange for promoting specific theaters. While this approach might have helped offset some costs, it further complicated MoviePass's relationships with theaters.
The most notable dispute occurred between MoviePass and AMC Theatres. AMC expressed strong disapproval of MoviePass's business model, viewing it as unsustainable and potentially detrimental to the industry.
In response to the disagreement, MoviePass made a controversial move by temporarily blocking its users from accessing AMC theaters through its app. This decision severely limited the choices available to MoviePass subscribers and created significant backlash, as they were unable to use the service at one of the most popular theater chains.
In response to MoviePass' blocking and perceived threat to its business, AMC introduced its subscription service called "AMC Stubs A-List." This alternative allowed users to watch multiple movies per month at AMC theaters for a competitive monthly fee. The introduction of AMC's subscription service provided MoviePass users with a viable alternative that offered more reliability and access to premium formats, which further eroded MoviePass' user base.
Following AMC's lead, other theater chains also explored or launched their subscription services, further intensifying the competition for MoviePass. These services offered alternatives to MoviePass, each with its own advantages and pricing models, making it even harder for MoviePass to maintain its market share.
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